A commission reduction is one of the fastest ways to decrease your net take home pay in the real estate business. In fact, when I coach clients – we quick start the eradication of discounts negotiated!
Let’s say that you are making a presentation for a listing or negotiating the seller’s contract and the cost of your commissions comes up. It is always a veiled threat that the transaction will not go through or the listing will not be obtained unless the dollar amount charged is lessened. At this point, you must be armed with self-confidence that you can prove your value.
Unless you are generating a lot of leads and have a large book of business, your ability to negotiate commissions lessens because of your fear of losing the client. For this article, let’s assume that you have already implemented proactive, seller lead generation systems, and you have clients coming in consistently from your programs. If not, I cannot give you the power to negotiate. You must have seller leads coming in all the time.
I am most concerned the Realtors? who have good business, have good proactive, seller lead generation systems in place, and still, because of the competition, reduce their fees. Here is my system for stopping the commission-cutting trend.
At a listing presentation, when the lower commission request is put forth – I’d like you to first say any of the quick one-liners that you’ve been taught at the seminars. You remember them. There’s the arrogant, but sometimes effective, “No, next question, please.” There’s the pie chart method where you explain where all your commission goes. There’s the old, “Oh, gee, Mr. Johnson, we’re about to travel a long distance across a very dry dessert. I will need enough gas in the tank to get me to the other side and accomplish your goals. The gas that fuels my business is the commission, and it allows me to commit the resources necessary to get your property sold.” Then there’s also the comment – “Tell me, Mr. Johnson, you’re a doctor. What do you say when someone asks you to cut your fees?” There’s the, “Mr. Johnson, if Agent B was so willing to cut his commissions, can you imagine what they would do to your price during those negotiations?” There’s also the “Other agents know what they’re worth comment.” Try them all – maybe they will giggle and say, “Oh, that’s okay. I thought I would try. Where do I sign?” Then again…maybe they won’t!
Let’s leave all the knee jerk concessions that you’ve been taught to offer as a last resort! Giving them a discount if they become a buyer or giving them a discount if you are handling both sides of the transaction are two of the most common rationalizations for discounts.
When the one liner approach does not work and your concession giver is dry and you still get the “I’ll think about it” response -- the only professional method of achieving your commission is to add perceived value to the transaction. Neiman Marcus and Nordstrom’s get top dollar because of the value they add to the transactions. You are a “department store” of real estate services that, perceived by the seller, can be obtained in many places. The only reason that you are full retail plus is because you offer more value. The value is real, and it needs to be conveyed in the following steps:
Step One:
When the question of commission reductions comes up, the objection needs to be isolated as the last remaining objection. This can easily be done by asking the question, “Mr. Johnson, if we can satisfy you in regards to our commission cost, are you willing to give us the honor of representing your home tonight?”
Step Two:
After you receive a positive move ahead on the above, you then relegate the commission request to a dollar value. “So, then Mr. Johnson a 1% reduction would equal $5000. Are you confident that an increase in your net proceeds would allow you to go ahead and market your property with us. Is this correct?”
Step Three:
If the above is a positive, it’s then time to restate the objection. “So, Mr. Johnson, do you mind if take a moment to show you more than one way that we can increase your net proceeds by $5000 so that you accomplish your goals even faster?”
Step Four:
Complete a net sheet at full commissions at the price you’re going to market the property at. Use every ability you have to limit their expenses. The question posed at the end of preparing that net sheet is as follows: “Mr. Johnson, before I show you all the ways that we can make this number even better, is this enough to get you where you’re going?” Sometimes there is the “Yes, that’s more than I thought” response and you can move ahead with your listing at full commission. Sometimes they say, “Yes, that is enough to get me where I’m going; however, I still want that $5000 commission reduction.”
Step Five:
“Then, Mr. Johnson, let me show you numerous different methods on achieving $5000 more so I can continue to live up to my advertising slogan, “Under Promise and Over Deliver.”
· “Let’s price your home for $5400 more. Pricing has never been an exact science with all of my marketing methods outlining the features and benefits of your home. I’ll bet we have a change to achieve it.”
· “I’d like to go over the statistics of the competing real estate agents you spoke to and show you their numbers of sales compared to mine. My statistics show more sales in a faster amount of time -- thus the accomplishment of your goals in the most efficient manner.” I’m sure there is a value that you place on my greater chance of success! Find out your competition at the pre-listing consultation stage.
· “I’d like to refer to the average list to sale ratio in our board of Realtors? and show you how I beat that ratio. By applying the board 97% ratio and comparing it to mine of 98.5%, you can see how my marketing program, that we have discussed earlier, will bring in more money than my competitions…more money than the $5000 that we’re talking about.”
· “I’d like to refer to the days on market as reported by the board MLS. I’d like to show you how we substantially beat the average days on market based upon my last sales. If you apply this savings of time to your carrying costs, you will see how a substantial part of that $5000 is once again earned.”
· “I’d like to refer to my search engine strategy, my networking, my internet marketing, telemarketing, database research, and other items that we have talked about earlier in the listing presentation. These simply provide more potential clients to your home. With more potential clients, the chance of better offers is heightened substantially. Many agents without marketing plans or without the ability to spend money on marketing plans, derive their leads from signs and the MLS. This means that your choices of buyers are limited.”
· “I have shown you my team concept and I would like to refer to my home inspector who has agreed to inspect your home within days of my obtaining the agreement to market your home. The report will be at no cost to you until close or expiration. It will provide many valuable clues regarding the condition of your home. It will allow time during the marketing period to obtain competitive bids to have repairs done prior to a buyer looking over our shoulder! It will allow us to have major items repaired in a workmanlike manner commensurate to what a typical contractor would recommend. Any repairs being done prior to the prying eyes of a buyer can be completed in a much more efficient and less costly manner. For instance, a leaky roof can be fixed two ways: a repair or a new roof. Obviously, a buyer would want a new roof. Obviously, we would want to have the problem repaired. I have saved hundreds of clients thousands of dollars by having properties pre-inspected prior to buyers using their own report as a shopping expedition.”
“Mr. Johnson, these are six of many systems that can show you real differences in my program compared to the competitions. Anyone of these systems could exceed the $5000 that you’re asking for. When you put them all together, I guarantee a substantially higher net than my competition could bring you, even if they did reduce their commissions. I would like to be compensated for my program, and I would like to be able to help you obtain your goal of moving closer to your grandchildren. Please allow me the opportunity to put you one step closer to that move tonight.”
As you can see, rather than negotiating commissions, we’re providing value to the client. The real estate industry has been weak in providing benefits to clients, and I think that this is the new and necessary method to not only maintain the return on the investments in our business but also to eliminate the competition.
